##### 



Exhibit 99(a)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                  |  |                  |     | 
|------------------------------------------------------------------------------------------------- |  | ---------------- | --- | 
|                                                                                                  |  | Page Reference  
|                                                                                                  |  | in Annual Report
|                                                                                                  |  | on Form 10-K    
|                                                                                                  |  |                 
|Report of Independent Auditors  PricewaterhouseCoopers LLP                                       |  |                  | F-2 | 
|Report of Independent Public Accountants  Arthur Andersen, LLP                                   |  |                  | F-3 | 
|Consolidated Balance Sheets as of December 31, 2003 and 2002                                      |  |                  | F-4 | 
|Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002, and 2001       |  |                  | F-5 | 
|Consolidated Statements of Partners Equity for the Years Ended December 31, 2003, 2002, and 2001 |  |                  | F-6 | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001       |  |                  | F-7 | 
|Notes to Consolidated Financial Statements                                                        |  |                  | F-8 | 

F-1



---



##### 



Report of Independent Auditors

To the Partners and the Management Committee of
Midland Cogeneration Venture Limited Partnership:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, partners equity and cash flows present
fairly, in all material respects, the financial position of the Midland
Cogeneration Limited Partnership (a Michigan limited partnership) and its
subsidiaries (MCV) at December 31, 2003 and 2002, and the results of their
operations and their cash flows for the each of the two years ended December
31, 2003 and 2002 in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of MCVs management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. The
financial statements of MCV for the year ended December 31, 2001, were audited
by other independent accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial statements in
their report dated January 18, 2002.

As explained in Note 2 to the financial statements, effective April 1, 2002,
Midland Cogeneration Venture Limited Partnership changed its method of
accounting for derivative and hedging activities in accordance with Derivative
Implementation Group (DIG) Issue C-16.

Detroit, Michigan
February 18, 2004

F-2



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##### 



THE FOLLOWING REPORT IS A COPY OF A PREVIOUSLY ISSUED REPORT BY ARTHUR
ANDERSEN LLP (ANDERSEN). THIS REPORT HAS NOT BEEN REISSUED BY ANDERSEN, AND
ANDERSEN DID NOT CONSENT TO THE INCLUSION OF THIS REPORT INTO THIS FORM 10-K.
THE FOOTNOTE SHOWN BELOW WAS NOT PART OF ANDERSENS REPORT.

ARTHUR ANDERSEN LLP

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners and the Management Committee of the
Midland Cogeneration Venture Limited Partnership:

We have audited the accompanying consolidated balance sheets of the MIDLAND
COGENERATION VENTURE LIMITED PARTNERSHIP (a Michigan limited partnership) and
subsidiaries (MCV) as of December 31, 2001 and 2000*, and the related
consolidated statements of operations, partners equity and cash flows for each
of the three years in the period ended December 31, 2001*. These financial
statements are the responsibility of MCVs management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Midland
Cogeneration Venture Limited Partnership and subsidiaries as of December 31,
2001 and 2000*, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001*, in
conformity with accounting principles generally accepted in the United States.

As explained in Note 2 to the financial statements, effective January 1, 2001,
Midland Cogeneration Venture Limited Partnership changed its method of
accounting related to derivatives and hedging activities.

Arthur Andersen LLP



| |  | Detroit, Michigan
January 18, 2002
| |  | ----------------------------------

*The MCVs consolidated balance sheets as of December 31, 2001 and 2000 and the
consolidated statements of operations, partners equity and cash flows for the
years ended December 31, 1999 and 2000 are not included in this Annual Report
on Form 10-K.

F-3



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##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,
(In Thousands)

|                                       |                                                                                                |                                     |           |           |           |      |           |           |           | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | 
|                                       |                                                                                                |                                     |           | 2003      |           | 2002
|                                       |                                                                                                |                                     |           |           |           |     
|ASSETS                                 |                                                                                                |                                     |           |           |           |      |           |          
|CURRENT ASSETS:                        |                                                                                                |                                     |           |           |           |      |           |          
|                                       | Cash and cash equivalents                                                                      |                                     | $         | 173,651   |           |      | $         | 160,425   |          
|                                       | Accounts and notes receivable  related parties                                                |                                     |           | 43,805    |           |      |           | 48,448    |          
|                                       | Accounts receivable                                                                            |                                     |           | 38,333    |           |      |           | 32,479    |          
|                                       | Gas inventory                                                                                  |                                     |           | 20,298    |           |      |           | 19,566    |          
|                                       | Unamortized property taxes                                                                     |                                     |           | 17,672    |           |      |           | 18,355    |          
|                                       | Derivative assets                                                                              |                                     |           | 86,825    |           |      |           | 73,819    |          
|                                       | Broker margin accounts and prepaid expenses                                                    |                                     |           | 8,101     |           |      |           | 5,165     |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|                                       |                                                                                                | Total current assets                |           |           | 388,685   |      |           |           | 358,257   | 
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|PROPERTY, PLANT AND EQUIPMENT          |                                                                                                |                                     |           |           |           |      |           |          
|                                       | Property, plant and equipment                                                                  |                                     |           | 2,463,931 |           |      |           | 2,449,148 |          
|                                       | Pipeline                                                                                       |                                     |           | 21,432    |           |      |           | 21,432    |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|                                       |                                                                                                | Total property, plant and equipment |           |           | 2,485,363 |      |           |           | 2,470,580 | 
|                                       | Accumulated depreciation                                                                       |                                     |           | (991,556  | )         |      |           | (920,614  | )        
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|                                       |                                                                                                | Net property, plant and equipment   |           |           | 1,493,807 |      |           |           | 1,549,966 | 
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|OTHER ASSETS:                          |                                                                                                |                                     |           |           |           |      |           |          
|                                       | Restricted investment securities held-to-maturity                                              |                                     |           | 139,755   |           |      |           | 138,701   |          
|                                       | Derivative assets non-current                                                                  |                                     |           | 18,100    |           |      |           | 31,037    |          
|                                       | Deferred financing costs, net of accumulated amortization
of $17,285 and $15,930, respectively |                                     |           | 7,680     |           |      |           | 9,035     |          
|                                       | Prepaid gas costs, materials and supplies                                                      |                                     |           | 21,623    |           |      |           | 11,077    |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|                                       |                                                                                                | Total other assets                  |           |           | 187,158   |      |           |           | 189,850   | 
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|TOTAL ASSETS                           |                                                                                                | $                                   | 2,069,650 |           |           | $    | 2,098,073 |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|LIABILITIES AND PARTNERS EQUITY       |                                                                                                |                                     |           |           |           |      |           |          
|CURRENT LIABILITIES:                   |                                                                                                |                                     |           |           |           |      |           |          
|                                       | Accounts payable and accrued liabilities                                                       |                                     | $         | 57,368    |           |      | $         | 58,080    |          
|                                       | Gas supplier funds on deposit                                                                  |                                     |           | 4,517     |           |      |           |          |          
|                                       | Interest payable                                                                               |                                     |           | 53,009    |           |      |           | 56,386    |          
|                                       | Current portion of long-term debt                                                              |                                     |           | 134,576   |           |      |           | 93,928    |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|                                       |                                                                                                | Total current liabilities           |           |           | 249,470   |      |           |           | 208,394   | 
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|NON-CURRENT LIABILITIES:               |                                                                                                |                                     |           |           |           |      |           |          
|                                       | Long-term debt                                                                                 |                                     |           | 1,018,645 |           |      |           | 1,153,221 |          
|                                       | Other                                                                                          |                                     |           | 2,459     |           |      |           | 2,148     |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|                                       |                                                                                                | Total non-current liabilities       |           |           | 1,021,104 |      |           |           | 1,155,369 | 
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|COMMITMENTS AND CONTINGENCIES          |                                                                                                |                                     |           |           |           |      |           |          
|TOTAL LIABILITIES                      |                                                                                                |                                     | 1,270,574 |           |           |      | 1,363,763 |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|PARTNERS EQUITY                       |                                                                                                |                                     | 799,076   |           |           |      | 734,310   |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          
|TOTAL LIABILITIES AND PARTNERS EQUITY |                                                                                                | $                                   | 2,069,650 |           |           | $    | 2,098,073 |          
|                                       |                                                                                                |                                     |           |           |           |      |           |          

The accompanying notes are an integral part of these statements.

F-4



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##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)

|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |          |          |  
|--------------------------------------------------------------------------------------------------------------- | ----------------------------------- | --------------------------------- | ------- | -------- | -------- | ---- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                                                                                |                                     |                                   |         | 2003     |          | 2002 |         | 2001    
|                                                                                                                |                                     |                                   |         |          |          |      |         |         
|OPERATING REVENUES:                                                                                             |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|                                                                                                                | Capacity                            |                                   | $       | 404,681  |          |      | $       | 404,713  |          |   | $       | 409,633  |         
|                                                                                                                | Electric                            |                                   |         | 162,093  |          |      |         | 177,569  |          |   |         | 184,707  |         
|                                                                                                                | Steam                               |                                   |         | 17,638   |          |      |         | 14,537   |          |   |         | 16,473   |         
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|                                                                                                                |                                     | Total operating revenues          |         |          | 584,412  |      |         |          | 596,819  |   |         |          | 610,813  |  
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|OPERATING EXPENSES:                                                                                             |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|                                                                                                                | Fuel costs                          |                                   |         | 254,988  |          |      |         | 255,142  |          |   |         | 288,167  |         
|                                                                                                                | Depreciation                        |                                   |         | 89,437   |          |      |         | 88,963   |          |   |         | 92,176   |         
|                                                                                                                | Operations                          |                                   |         | 16,943   |          |      |         | 16,642   |          |   |         | 16,082   |         
|                                                                                                                | Maintenance                         |                                   |         | 15,107   |          |      |         | 12,666   |          |   |         | 13,739   |         
|                                                                                                                | Property and single business taxes  |                                   |         | 30,040   |          |      |         | 27,087   |          |   |         | 26,410   |         
|                                                                                                                | Administrative, selling and general |                                   |         | 9,959    |          |      |         | 8,195    |          |   |         | 16,404   |         
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|                                                                                                                |                                     | Total operating expenses          |         |          | 416,474  |      |         |          | 408,695  |   |         |          | 452,978  |  
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|OPERATING INCOME                                                                                                |                                     |                                   | 167,938 |          |          |      | 188,124 |          |          |   | 157,835 |         
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|OTHER INCOME (EXPENSE):                                                                                         |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|                                                                                                                | Interest and other income           |                                   |         | 5,100    |          |      |         | 5,555    |          |   |         | 16,725   |         
|                                                                                                                | Interest expense                    |                                   |         | (113,247 | )        |      |         | (119,783 | )        |   |         | (126,296 | )       
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|                                                                                                                |                                     | Total other income (expense), net |         |          | (108,147 | )    |         |          | (114,228 | ) |         |          | (109,571 | )
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE                                                        |                                     |                                   | 59,791  |          |          |      | 73,896  |          |          |   | 48,264  |         
|Cumulative effect of change in method of
accounting for derivative option contracts
(to April 1, 2002) (Note 2) |                                     |                                   |        |          |          |      | 58,131  |          |          |   |        |         
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         
|NET INCOME                                                                                                      |                                     | $                                 | 59,791  |          |          | $    | 132,027 |          |          | $ | 48,264  |         
|                                                                                                                |                                     |                                   |         |          |          |      |         |          |          |   |         |         

The accompanying notes are an integral part of these statements.

F-5



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##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS EQUITY FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)

|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |         |         |  
|-------------------------- | -------------------------- | --------------------------------------------------------------- | ------- | -------- | ------- | -------- | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                           |                            |                                                                 |         | General  |         | Limited  |         |        |        |  
|                           |                            |                                                                 |         | Partners |         | Partners |         | Total 
|                           |                            |                                                                 |         |          |         |          |         |       
|BALANCE, DECEMBER 31, 2000 |                            | $                                                               | 448,100 |          |         | $        | 79,638  |        |        | $ | 527,738 |        
|Comprehensive Income       |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           | Net Income                 |                                                                 |         | 42,020   |         |          |         | 6,244  |        |   |         | 48,264  |        
|                           | Other Comprehensive Income |                                                                 |         |          |         |          |         |        |        |   |         |         |        
|                           |                            | Cumulative effect of accounting change                          |         |          | 13,688  |          |         |        | 2,034  |   |         |         | 15,722  |  
|                           |                            | Unrealized loss on hedging activities                           |         |          | (42,444 | )        |         |        | (6,307 | ) |         |         | (48,751 | )
|                           |                            | Reclassification adjustments recognized
in net income above     |         |          | 7,608   |          |         |        | 1,131  |   |         |         | 8,739   |  
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           |                            | Total other comprehensive income                                |         |          | (21,148 | )        |         |        | (3,142 | ) |         |         | (24,290 | )
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           | Total Comprehensive Income |                                                                 |         | 20,872   |         |          |         | 3,102  |        |   |         | 23,974  |        
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|BALANCE, DECEMBER 31, 2001 |                            | $                                                               | 468,972 |          |         | $        | 82,740  |        |        | $ | 551,712 |        
|Comprehensive Income       |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           | Net Income                 |                                                                 |         | 114,947  |         |          |         | 17,080 |        |   |         | 132,027 |        
|                           | Other Comprehensive Income |                                                                 |         |          |         |          |         |        |        |   |         |         |        
|                           |                            | Unrealized gain on hedging activities
since beginning of period |         |          | 33,311  |          |         |        | 4,950  |   |         |         | 38,261  |  
|                           |                            | Reclassification adjustments recognized
in net income above     |         |          | 10,717  |          |         |        | 1,593  |   |         |         | 12,310  |  
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           |                            | Total other comprehensive income                                |         |          | 44,028  |          |         |        | 6,543  |   |         |         | 50,571  |  
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           | Total Comprehensive Income |                                                                 |         | 158,975  |         |          |         | 23,623 |        |   |         | 182,598 |        
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|BALANCE, DECEMBER 31, 2002 |                            | $                                                               | 627,947 |          |         | $        | 106,363 |        |        | $ | 734,310 |        
|Comprehensive Income       |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           | Net Income                 |                                                                 |         | 52,056   |         |          |         | 7,735  |        |   |         | 59,791  |        
|                           | Other Comprehensive Income |                                                                 |         |          |         |          |         |        |        |   |         |         |        
|                           |                            | Unrealized gain on hedging activities
since beginning of period |         |          | 34,484  |          |         |        | 5,125  |   |         |         | 39,609  |  
|                           |                            | Reclassification adjustments recognized
in net income above     |         |          | (30,153 | )        |         |        | (4,481 | ) |         |         | (34,634 | )
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           |                            | Total other comprehensive income                                |         |          | 4,331   |          |         |        | 644    |   |         |         | 4,975   |  
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|                           | Total Comprehensive Income |                                                                 |         | 56,387   |         |          |         | 8,379  |        |   |         | 64,766  |        
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        
|BALANCE, DECEMBER 31, 2003 |                            | $                                                               | 684,334 |          |         | $        | 114,742 |        |        | $ | 799,076 |        
|                           |                            |                                                                 |         |          |         |          |         |        |        |   |         |        

The accompanying notes are an integral part of these statements.

F-6



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##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
(In Thousands)

|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |          |          |  
|---------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------- | ------- | -------- | ------- | ---- | ------- | -------- | -------- | - | ------- | -------- | -------- | -
|                                                     |                                                                                  |                                           |         | 2003     |         | 2002 |         | 2001    
|                                                     |                                                                                  |                                           |         |          |         |      |         |         
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         
|                                                     | Net income                                                                       |                                           | $       | 59,791   |         |      | $       | 132,027  |          |   | $       | 48,264   |         
|                                                     | Adjustments to reconcile net income to net cash provided by
operating activities |                                           |         |          |         |      |         |          |          |   |         |          |         
|                                                     | Depreciation and amortization                                                    |                                           |         | 90,792   |         |      |         | 90,430   |          |   |         | 93,835   |         
|                                                     | Cumulative effect of change in accounting principle                              |                                           |         |         |         |      |         | (58,131  | )        |   |         |         |         
|                                                     | (Increase) decrease in accounts receivable                                       |                                           |         | (1,211   | )       |      |         | 48,343   |          |   |         | 55,127   |         
|                                                     | (Increase) decrease in gas inventory                                             |                                           |         | (732     | )       |      |         | 133      |          |   |         | (5,225   | )       
|                                                     | (Increase) decrease in unamortized property taxes                                |                                           |         | 683      |         |      |         | (1,730   | )        |   |         | (415     | )       
|                                                     | (Increase) decrease in broker margin accounts and prepaid expenses               |                                           |         | (4,778   | )       |      |         | 31,049   |          |   |         | (26,587  | )       
|                                                     | (Increase) decrease in derivative assets                                         |                                           |         | 4,906    |         |      |         | (20,444  | )        |   |         |         |         
|                                                     | (Increase) decrease in prepaid gas costs, materials and supplies                 |                                           |         | (8,704   | )       |      |         | 1,376    |          |   |         | 8,414    |         
|                                                     | Increase (decrease) in accounts payable and accrued liabilities                  |                                           |         | (712     | )       |      |         | 8,774    |          |   |         | (43,704  | )       
|                                                     | Increase in gas supplier funds on deposit                                        |                                           |         | 4,517    |         |      |         |         |          |   |         |         |         
|                                                     | Decrease in interest payable                                                     |                                           |         | (3,377   | )       |      |         | (3,948   | )        |   |         | (7,082   | )       
|                                                     | Increase (decrease) in other non-current liabilities                             |                                           |         | 311      |         |      |         | (24      | )        |   |         | 245      |         
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |          |         
|                                                     |                                                                                  | Net cash provided by operating activities |         |          | 141,486 |      |         |          | 227,855  |   |         |          | 122,872  |  
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         
|                                                     | Plant modifications and purchases of plant equipment                             |                                           |         | (33,278  | )       |      |         | (29,529  | )        |   |         | (30,530  | )       
|                                                     | Maturity of restricted investment securities held-to-maturity                    |                                           |         | 601,225  |         |      |         | 377,192  |          |   |         | 538,327  |         
|                                                     | Purchase of restricted investment securities held-to-maturity                    |                                           |         | (602,279 | )       |      |         | (374,426 | )        |   |         | (539,918 | )       
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |          |         
|                                                     |                                                                                  | Net cash used in investing activities     |         |          | (34,332 | )    |         |          | (26,763  | ) |         |          | (32,121  | )
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         
|                                                     | Repayment of financing obligation                                                |                                           |         | (93,928  | )       |      |         | (182,084 | )        |   |         | (155,632 | )       
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |          |         
|                                                     |                                                                                  | Net cash used in financing activities     |         |          | (93,928 | )    |         |          | (182,084 | ) |         |          | (155,632 | )
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                  |                                           | 13,226  |          |         |      | 19,008  |          |          |   | (64,881 | )       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD     |                                                                                  |                                           | 160,425 |          |         |      | 141,417 |          |          |   | 206,298 |         
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         
|CASH AND EQUIVALENTS AT END OF PERIOD                |                                                                                  | $                                         | 173,651 |          |         | $    | 160,425 |          |          | $ | 141,417 |         
|                                                     |                                                                                  |                                           |         |          |         |      |         |          |          |   |         |         

The accompanying notes are an integral part of these statements.

F-7



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|(1) |  | THE PARTNERSHIP AND ASSOCIATED RISKS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | MCV was organized to construct, own and operate a combined-cycle, gas-fired
cogeneration facility (the Facility) located in Midland, Michigan. MCV
was formed on January 27, 1987, and the Facility began commercial operation
in 1990.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | In 1992, MCV acquired the outstanding common stock of PVCO Corp., a
previously inactive company. MCV and PVCO Corp. entered into a partnership
agreement to form MCV Gas Acquisition General Partnership (MCV GAGP) for
the purpose of buying and selling natural gas on the spot market and other
transactions involving natural gas activities. Currently, MCV GAGP is not
actively engaged in any business activity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The Facility has a net electrical generating capacity of approximately 1500
MW and approximately 1.5 million pounds of process steam capacity per hour.
MCV has entered into three principal energy sales agreements. MCV has
contracted to (i) supply up to 1240 MW of electric capacity (Contract
Capacity) to Consumers Energy Company (Consumers) under the Power
Purchase Agreement (PPA), for resale to its customers through 2025, (ii)
supply electricity and steam to The Dow Chemical Company (Dow) under the
Steam and Electric Power Agreement (SEPA) through 2015 and (iii) supply
steam to Dow Corning Corporation (DCC) under the Steam Purchase Agreement
(SPA) through 2011. From time to time, MCV enters into other sales
agreements for the sale of excess capacity and/or energy available above
MCVs internal use and obligations under the PPA, SEPA and SPA. Results of
operations are primarily dependent on successfully operating the Facility at
or near contractual capacity levels and on Consumers ability to perform its
obligations under the PPA. Sales pursuant to the PPA have historically
accounted for over 90% of MCVs revenues.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The PPA permits Consumers, under certain conditions, to reduce the capacity
and energy charges payable to MCV and/or to receive refunds of capacity and
energy charges paid to MCV if the Michigan Public Service Commission
(MPSC) does not permit Consumers to recover from its customers the
capacity and energy charges specified in the PPA (the regulatory-out
provision). Until September 15, 2007, however, the capacity charge may not
be reduced below an average capacity rate of 3.77 cents per kilowatt-hour
for the available Contract Capacity notwithstanding the regulatory-out
provision. Consumers and MCV are required to support and defend the terms
of the PPA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The Facility is a qualifying cogeneration facility (QF) originally
certified by the Federal Energy Regulatory Commission (FERC) under the
Public Utility Regulatory Policies Act of 1978, as amended (PURPA). In
order to maintain QF status, certain operating and efficiency standards must
be maintained on a calendar-year basis and certain ownership limitations
must be met. In the case of a topping-cycle generating plant such as the
Facility, the applicable operating standard requires that the portion of
total energy output that is put to some useful purpose other than
facilitating the production of power (the Thermal Percentage) be at least
5%. In addition, the Facility must achieve a PURPA efficiency standard (the
sum of the useful power output plus one-half of the useful thermal energy
output, divided by the energy input (the Efficiency Percentage)) of at
least 45%. If the Facility maintains a Thermal Percentage of 15% or higher,
the required Efficiency Percentage is reduced to 42.5%. Since 1990, the
Facility has achieved the applicable Thermal and Efficiency Percentages.
For the twelve months ended December 31, 2003, the Facility achieved a
Thermal Percentage of 21.0% and an Efficiency Percentage of 47.4%. The loss
of QF status could, among other things, cause the Facility to lose its
rights under PURPA to sell power to Consumers at Consumers avoided cost
and subject the Facility to additional federal and state regulatory
requirements. MCV believes that the Facility will meet the required Thermal
Percentage and the corresponding Efficiency Percentage in 2003 and beyond,
as well as the PURPA ownership limitations.
|   
|    |  | The Facility is wholly dependent upon natural gas for its fuel supply and a
substantial portion of the Facilitys operating expenses consist of the
costs of natural gas. MCV recognizes that its existing gas contracts are
not sufficient to satisfy the anticipated gas needs over the term of the PPA
and, as such, no assurance can be given
as to the availability or price of natural gas after the expiration of the
existing gas contracts. In addition, to the extent that the costs
associated with production of electricity rise faster than the energy charge
payments, MCVs financial performance will be negatively affected. The
extent of such impact will depend upon the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F-8



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



|    |  | amount of the average energy charge payable under the PPA, which is based
upon costs incurred at Consumers coal-fired plants and upon the amount of
energy scheduled by Consumers for delivery under the PPA. However, given
the unpredictability of these factors, the overall economic impact upon MCV
of changes in energy charges payable under the PPA and in future fuel costs
under new or existing contracts cannot accurately be predicted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | At both the state and federal level, efforts continue to restructure the
electric industry. A significant issue to MCV is the potential for future
regulatory denial of recovery by Consumers from its customers of above
market PPA costs Consumers pays MCV. At the state level, the MPSC entered a
series of orders from June 1997 through February 1998 (collectively the
Restructuring Orders), mandating that utilities wheel third-party power
to the utilities customers, thus permitting customers to choose their power
provider. MCV, as well as others, filed an appeal in the Michigan Court of
Appeals to protect against denial of recovery by Consumers of PPA charges.
The Michigan Court of Appeals found that the Restructuring Orders do not
unequivocally disallow such recovery by Consumers and, therefore, MCVs
issues were not ripe for appellate review and no actual controversy
regarding recovery of costs could occur until 2008, at the earliest. In
June 2000, the State of Michigan enacted legislation which, among other
things, states that the Restructuring Orders (being voluntarily implemented
by Consumers) are in compliance with the legislation and enforceable by the
MPSC. The legislation provides that the rights of parties to existing
contracts between utilities (like Consumers) and QFs (like MCV), including
the rights to have the PPA charges recovered from customers of the
utilities, are not abrogated or diminished, and permits utilities to
securitize certain stranded costs, including PPA charges.
|   
|    |  | In 1999, the U.S. District Court granted summary judgment to MCV declaring
that the Restructuring Orders are preempted by federal law to the extent
they prohibit Consumers from recovering from its customers any charge for
avoided costs (or stranded costs) to be paid to MCV under PURPA pursuant
to the PPA. In 2001, the United States Court of Appeals (Appellate Court)
vacated the U.S. District Courts 1999 summary judgment and ordered the case
dismissed based upon a finding that no actual case or controversy existed
for adjudication between the parties. The Appellate Court determined that
the parties dispute is hypothetical at this time and the QFs (including
MCV) claims are premised on speculation about how an order might be
interpreted by the MPSC, in the future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | MCV continues to monitor and participate in these industry restructuring
matters as appropriate, and to evaluate potential impacts on both cash flows
and recoverability of the carrying value of property, plant and equipment.
MCV management cannot, at this time, predict the impact or outcome of these
matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) |  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. Following is a discussion of MCVs significant accounting
policies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The consolidated financial statements include the accounts of MCV and its
wholly owned subsidiaries. All material transactions and balances among
entities, which comprise MCV, have been eliminated in the consolidated
financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | MCV recognizes revenue for the sale of variable energy and fixed energy when
delivered. Capacity and other installment revenues are recognized based on
plant availability or other contractual arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-9



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | Fuel Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | MCVs fuel costs are those costs associated with securing natural gas,
transportation and storage services necessary to generate electricity and
steam from the Facility. These costs are recognized in the income statement
based upon actual volumes burned to produce the delivered energy. In
addition, MCV engages in certain cost mitigation activities to offset the
fixed charges MCV incurs for these activities. The gains or losses resulting
from these activities have resulted in net gains of approximately $7.7
million, $3.9 million and $5.5 million for the years ended 2003, 2002 and
2001, respectively. These net gains are reflected as a component of fuel
costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | In July 2000, in response to rapidly escalating natural gas prices and
since Consumers electric rates were frozen, MCV entered into transactions
with Consumers whereby Consumers agreed to reduce MCVs dispatch level and
MCV agreed to share with Consumers the savings realized by not having to
generate electricity (Dispatch Mitigation). For the years ended 2003,
2002 and 2001, MCV estimates that Dispatch Mitigation resulted in net
savings of approximately $13.0 million, $2.5 million and $7.6 million,
respectively, a portion of which will be realized in reduced maintenance
expenditures in future years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Subsequently, on January 1, 2004, Dispatch Mitigation ceased and Consumers
began dispatching MCV pursuant to the 915 MW Settlement and the 325 MW
Settlement availability caps provision (i.e., minimum dispatch of 1100 MW
on- and off-peak (Forced Dispatch)). On February 12, 2004, MCV and
Consumers entered into a Resource Conservation Agreement (RCA) which,
among other things, provides that Consumers will economically dispatch MCV,
if certain conditions are met. Such dispatch is expected to reduce
electric production from what would have occurred under the Forced
Dispatch, as well as decrease gas consumption by MCV. The RCA provides
that Consumers has a right of first refusal to purchase, at market prices,
the gas conserved under the RCA. The RCA further provides for the parties
to enter into another agreement implementing the terms of the RCA including
the sharing of savings realized by not having to generate electricity. The
RCA is subject to MPSC approval and MCV and Consumers must accept the terms
of the MPSC order as a condition precedent to the RCA becoming effective.
The MPSC has not yet acted upon Consumers application for approval of the
RCA. MCV cannot predict the outcome of the MPSC proceedings necessary to
effectuate the RCA.
|
| |  | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | MCVs inventory of natural gas is stated at the lower of cost or market, and
valued using the last-in, first-out (LIFO) method. Inventory includes the
costs of purchased gas, variable transportation and storage. The amount of
reserve to reduce inventories from first-in, first-out (FIFO) basis to the
LIFO basis at December 31, 2003 and 2002, was $8.4 million and $7.4 million,
respectively. Inventory cost, determined on a FIFO basis, approximates
current replacement cost.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Materials and Supplies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Materials and supplies are stated at the lower of cost or market using the
weighted average cost method. The majority of MCVs materials and supplies
are considered replacement parts for MCVs Facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Original plant, equipment and pipeline were valued at cost for the
constructed assets and at the asset transfer price for purchased and
contributed assets, and are depreciated using the straight-line method over
an estimated useful life of 35 years, which is the term of the PPA, except
for the hot gas path components of the GTGs which are primarily being
depreciated over a 25-year life. Plant construction and additions, since
commercial
operations in 1990, are depreciated using the straight-line method over the
remaining life of the plant which currently is 22 years. Major renewals and
replacements, which extend the useful life of plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-10



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##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | are capitalized, while maintenance and repairs are expensed when incurred.
Major equipment overhauls are capitalized and amortized to the next
equipment overhaul. Personal property is depreciated using the
straight-line method over an estimated useful life of 5 to 15 years. The
cost of assets and related accumulated depreciation are removed from the
accounts when sold or retired, and any resulting gain or loss reflected in
operating income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Federal Income Tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | MCV is not subject to Federal or State income taxes. Partnership earnings
are taxed directly to each individual partner.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Statement of Cash Flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | All liquid investments purchased with a maturity of three months or less at
time of purchase are considered to be current cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | The carrying amounts of cash and cash equivalents and short-term investments
approximate fair value because of the short maturity of these instruments.
MCVs short-term investments, which are made up of investment securities
held-to-maturity, as of December 31, 2003 and December 31, 2002 have
original maturity dates of approximately one year or less. The unique
nature of the negotiated financing obligation discussed in Note 6 makes it
unnecessary to estimate the fair value of the Owner Participants underlying
debt and equity instruments supporting such financing obligation, since SFAS
No. 107 Disclosures about Fair Value of Financial Instruments does not
require fair value accounting for the lease obligation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Accounting for Derivative Instruments and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Effective January 1, 2001, MCV adopted SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities which was issued in June 1998
and then amended by SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities  Deferral of the Effective Date of SFAS No. 133, SFAS
No. 138 Accounting for Certain Derivative Instruments and Certain Hedging
Activities  An amendment of FASB Statement No. 133 and SFAS No. 149
Amendment of Statement 133 on Derivative Instruments and Hedging Activity
(collectively referred to as SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in a
derivatives fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
in some cases allows a derivatives gains and losses to offset related
results on the hedged item in the income statement or permits recognition of
the hedge results in other comprehensive income, and requires that a company
formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.



| |  |  | Electric Sales Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | MCV believes that its electric sales agreements currently do not qualify
as derivatives under SFAS No. 133, due to the lack of an active energy
market (as defined by SFAS No. 133) in the State of Michigan and the
transportation cost to deliver the power under the contracts to the
closest active energy market at the Cinergy hub in Ohio and as such does
not record the fair value of these contracts on its balance sheet. If an
active energy market emerges, MCV intends to apply the normal purchase,
normal sales exception under SFAS No. 133 to its electric sales
agreements, to the extent such exception is applicable.
|
| |  |  | Forward Foreign Exchange Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  |  | An amended service agreement was entered into between MCV and Alstom
Power Company (Alstom) (the Amended Service Agreement), under which
Alstom will provide hot gas path parts for MCVs twelve                                                                                                                                                                                                                                                                                                                                                                                                                                      

F-11



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  |  | gas turbines. The payments due to Alstom under the Amended Service
Agreement are adjusted annually based on the U.S. dollar to Swiss franc
currency exchange rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | To manage this currency exchange rate risk and hedge against adverse
currency fluctuations impacting the payments under the Amended Service
Agreement, MCV maintained a foreign currency hedging program whereby MCV
periodically entered into forward purchase contracts for Swiss francs.
Under SFAS No. 133, the forward foreign currency exchange contracts
qualified as fair value hedges, since they hedged the identifiable
foreign currency commitment of the Amended Service Agreement. As of
December 31, 2003, MCV did not have any such transactions outstanding and
does not anticipate any future transactions since the Alstom Agreement is
expected to be terminated in the near future. As of December 31, 2002,
MCV had a forward purchase contract involving Swiss francs in the
notional amount of $5.0 million. This hedge was considered highly
effective, therefore, there was no material gain or loss recognized in
earnings during the twelve months ended December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | Natural Gas Supply Contracts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | MCV management believes that its long-term natural gas contracts which do
not contain volume optionality qualify under SFAS No. 133 for the normal
purchases and normal sales exception. Therefore, these contracts are
currently not recognized at fair value on the balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | The FASB issued DIG Issue C-16, which became effective April 1, 2002,
regarding natural gas commodity contracts that combine an option
component and a forward component. This guidance requires either that
the entire contract be accounted for as a derivative or the components of
the contract be separated into two discrete contracts. Under the first
alternative, the entire contract considered together would not qualify
for the normal purchases and sales exception under the revised guidance.
Under the second alternative, the newly established forward contract
could qualify for the normal purchases and sales exception, while the
option contract would be treated as a derivative under SFAS No. 133 with
changes in fair value recorded through earnings. At April 1, 2002, MCV
had nine long-term gas contracts that contained both an option and
forward component. As such, they were no longer accounted for under the
normal purchases and sales exception and MCV began mark-to-market
accounting of these nine contracts through earnings. Based on the natural
gas prices, at the beginning of April 2002, MCV recorded a $58.1 million
gain for the cumulative effect of this accounting change. During the
fourth quarter of 2002, MCV removed the option component from three of
the nine long-term gas contracts, which should reduce some of the
earnings volatility. Since April 2002, MCV has recorded an additional
mark-to-market gain of $16.9 million for these gas contracts for a
cumulative mark-to-market gain through December 31, 2003 of $75.0
million, which will reverse over the remaining life of these gas
contracts, ranging from 2004 to 2007.
|
| |  |  | For the twelve months ended December 31, 2003, MCV recorded in Fuel
costs a $5.0 million net mark-to-market loss in earnings associated with
these contracts. In addition, as of December 31, 2003 and December 31,
2002, MCV recorded Derivative assets in Current Assets in the amount of
$56.9 million and $48.9 million, respectively, and for the same periods
recorded Derivative assets in Other Assets in the amount of $18.1
million and $31.0 million, respectively, representing the mark-to-market
gain on these long-term natural gas contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | Natural Gas Supply Futures and Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | To manage market risks associated with the volatility of natural gas
prices, MCV maintains a gas hedging program. MCV enters into natural gas
futures and option contracts in order to hedge against unfavorable
changes in the market price of natural gas in future months when gas is
expected to be needed. These financial instruments are being utilized
principally to secure anticipated natural gas requirements necessary for
projected electric and steam sales, and to lock in sales prices of
natural gas previously obtained in order to optimize MCVs existing gas
supply, storage and transportation arrangements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | These financial instruments are derivatives under SFAS No. 133 and the
contracts that are utilized to secure the anticipated natural gas
requirements necessary for projected electric and steam sales qualify as
cash flow                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-12



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  |  | hedges under SFAS No. 133, since they hedge the price risk associated
with the cost of natural gas. MCV also engages in cost mitigation
activities to offset the fixed charges MCV incurs in operating the
Facility. These cost mitigation activities include the use of futures
and options contracts to purchase and/or sell natural gas to maximize the
use of the transportation and storage contracts when it is determined
that they will not be needed for Facility operation. Although these cost
mitigation activities do serve to offset the fixed monthly charges, these
cost mitigation activities are not considered a normal course of business
for MCV and do not qualify as hedges under SFAS No. 133. Therefore, the
resulting mark-to-market gains and losses from cost mitigation activities
are flowed through MCVs earnings.                                                                                                                                                                                                                                                                                                 
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Cash is deposited with the broker in a margin account at the time futures
or options contracts are initiated. The change in market value of these
contracts requires adjustment of the margin account balances. The margin
account balance as of December 31, 2003 and December 31, 2002 was
recorded as a current asset in Broker margin accounts and prepaid
expenses, in the amount of $4.1 million and $.8 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | For the twelve months ended December 31, 2003, MCV has recognized in
other comprehensive income, an unrealized $5.0 million increase on the
futures contracts, which are hedges of forecasted purchases for plant use
of market priced gas. This resulted in a net $31.3 million gain in other
comprehensive income as of December 31, 2003. This balance represents
natural gas futures and options with maturities ranging from January 2004
to December 2007, of which $21.8 million of this gain is expected to be
reclassified into earnings within the next twelve months. MCV also has
recorded, as of December 31, 2003, a $29.9 million current derivative
asset in Derivative assets, representing the mark-to-market gain on
natural gas futures for anticipated projected electric and steam sales
accounted for as hedges. In addition, for the twelve months ended
December 31, 2003, MCV has recorded a net $35.0 million gain in earnings
included in fuel costs from hedging activities related to MCV natural gas
requirements for Facility operations and a net $1.0 million gain in
earnings from cost mitigation activities.
|
| |  |  | For the twelve months ended December 31, 2002, MCV recognized an
unrealized $50.6 million increase in other comprehensive income on the
futures contracts, which are hedges of forecasted purchases for plant use
of market priced gas, resulting in a $26.3 million gain balance in other
comprehensive income as of December 31, 2002. As of December 31, 2002,
MCV had recorded a $24.9 million current derivative asset in Derivative
assets. For the twelve months ended December 31, 2002, MCV had recorded
a net $12.2 million loss in earnings from hedging activities related to
MCV natural gas requirements for Facility operations and a net $.4
million gain in earnings from cost mitigation activities.                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Interest Rate Swaps                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  |  | To manage the effects of interest rate volatility on interest income
while maximizing return on permitted investments, MCV established an
interest rate hedging program. The notional amounts of the hedges are
tied directly to MCVs anticipated cash investments, without physically
exchanging the underlying notional amounts. Cash is deposited with the
broker in a margin account at the time the interest rate swap
transactions are initiated. The change in market value of these
contracts may require further adjustment of the margin account balance.
The margin account balance at December 31, 2002, of
approximately $25,000, which was recorded as a current asset in Broker margin accounts
and prepaid expenses, was returned to MCV during the month of January
2003 since MCV currently does not have any outstanding interest rate swap
transactions.                                                                                                                                                                                                                                                                    
|
| |  |  | As of December 31, 2002, MCV had one interest rate swap, with a notional
amount of $20.0 million with a period of performance that extended to
December 1, 2002, which did not qualify as a hedge under SFAS No. 133.
The gains and losses on this swap were recorded currently in earnings.
For the twelve months ended December 31, 2002, MCV recorded an immaterial
loss in earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F-13



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  |  | Reclassification                                                                                                    
| |  |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | Certain prior period amounts have been reclassified to conform to the
current year financial statement presentation.



|    |  | New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This SFAS amends SFAS No.
133 for decisions made (1) as part of the Derivative Implementations Group
process that effectively required amendments to SFAS No. 133, (2) for other
Financial Accounting Standards Board projects dealing with financial
instruments and (3) for implementation issues raised in relation to the
application of this definition of a derivative. The changes in this SFAS
No. 149 improve financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly, which will result in
more consistent reporting of contracts as either derivatives or hybrid
instruments. This standard is effective for contracts entered into or
modified after June 30, 2003, with some exceptions. MCV has adopted this
standard and does not expect the application to materially affect its
financial position or results of operations.
|   
|(3) |  | RESTRICTED INVESTMENT SECURITIES HELD-TO-MATURITY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Non-current restricted investment securities held-to-maturity have carrying
amounts that approximate fair value because of the short maturity of these
instruments and consist of the following at December 31 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                                                               |  |      |         |      |  |   |         | 
|------------------------------------------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                               |  | 2003 |         | 2002
|                                                                               |  |      |         |     
|Funds restricted for rental payments
pursuant to the Overall Lease
Transaction |  | $    | 137,296 |      |  | $ | 136,554 | 
|Funds restricted for management
non-qualified plans                            |  |      | 2,459   |      |  |   | 2,147   | 
|                                                                               |  |      |         |      |  |   |         | 
|Total                                                                          |  | $    | 139,755 |      |  | $ | 138,701 | 
|                                                                               |  |      |         |      |  |   |         | 



|(4) |  | ACCOUNTS PAYABLE AND ACCRUED LIABILITIES                                                        
|--- |  | ------------------------------------------------------------------------------------------------
|   
|    |  | Accounts payable and accrued liabilities consist of the following at
December 31 (in thousands):

|                                   |                 |   |        |        |      |   |        |        | 
|---------------------------------- | --------------- | - | ------ | ------ | ---- | - | ------ | ------ | 
|                                   |                 |   | 2003   |        | 2002
|                                   |                 |   |        |        |     
|Accounts payable                   |                 |   |        |        |      |   |        |       
|                                   | Related parties |   | $      | 7,386  |      |   | $      | 12,224 | 
|                                   | Trade creditors |   |        | 34,786 |      |   |        | 27,935 | 
|Property and single business taxes |                 |   | 12,548 |        |      |   | 14,842 |       
|Other                              |                 |   | 2,648  |        |      |   | 3,079  |       
|                                   |                 |   |        |        |      |   |        |       
|Total                              |                 | $ | 57,368 |        |      | $ | 58,080 |       
|                                   |                 |   |        |        |      |   |        |       



|(5) |  | GAS SUPPLIER FUNDS ON DEPOSIT                                                                                                                                                                                                                                                                                                                
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Pursuant to individual gas contract terms with counterparties, deposit
amounts may be required by one party to
the other based upon the net amount of exposure.  The net amount of exposure will vary with
changes in market prices, credit provisions and various other factors.  Collateral paid or
received will be posted by one party to

F-14



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



|    |  | the other based upon the net amount of exposure. The net amount of exposure
will vary with changes in market prices, credit provisions and various other
factors. Collateral paid or received will be posted by one party to the
other based on the net amount of the exposure. Interest is earned on funds
on deposit. As of December 31, 2003 MCV was not supplying any credit
support in the form of cash or letters of credit. As of December 31, 2003
MCV was holding $4.5 million of cash on deposit and letters of credit
totaling $116.6 million from two gas suppliers as collateral support.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | LONG-TERM DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | Long-term debt consists of the following at December 31 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                                                                                                                                            |  |      |           |      |  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- |  | - | --------- | -
|                                                                                                                                                            |  | 2003 |           | 2002
|                                                                                                                                                            |  |      |           |     
|Financing obligation, maturing through
2015, payable in semi-annual installments
of principal and interest, collateralized
by property, plant and equipment |  | $    | 1,153,221 |      |  | $ | 1,247,149 |  
|Less current portion                                                                                                                                        |  |      | (134,576  | )    |  |   | (93,928   | )
|                                                                                                                                                            |  |      |           |      |  |   |           |  
|Total long-term debt                                                                                                                                        |  | $    | 1,018,645 |      |  | $ | 1,153,221 |  
|                                                                                                                                                            |  |      |           |      |  |   |           |  



| |  | Financing Obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In June 1990, MCV obtained permanent financing for the Facility by entering
into sale and leaseback agreements (Overall Lease Transaction) with a
lessor group, related to substantially all of MCVs fixed assets. Proceeds
of the financing were used to retire borrowings outstanding under existing
loan commitments, make a capital distribution to the Partners and retire a
portion of notes issued by MCV to MEC Development Corporation (MDC) in
connection with the transfer of certain assets by MDC to MCV. In
accordance with SFAS No. 98, Accounting For Leases, the sale and
leaseback transaction has been accounted for as a financing arrangement.                                                                                                                                                                                                               
|
| |  | The financing obligation utilizes the effective interest rate method, which
is based on the minimum lease payments required through the end of the
basic lease term of 2015 and managements estimate of additional
anticipated obligations after the end of the basic lease term. The
effective interest rate during the remainder of the basic lease term is
approximately 9.4%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Under the terms of the Overall Lease Transaction, MCV sold undivided
interests in all of the fixed assets of the Facility for approximately $2.3
billion, to five separate owner trusts (Owner Trusts) established for the
benefit of certain institutional investors (Owner Participants). U.S.
Bank National Association (formerly known as State Street Bank and Trust
Company) serves as owner trustee (Owner Trustee) under each of the Owner
Trusts, and leases undivided interests in the Facility on behalf of the
Owner Trusts to MCV for an initial term of 25 years. CMS Midland Holdings
Company (CMS Holdings), currently a wholly owned subsidiary of Consumers,
acquired a 35% indirect equity interest in the Facility through its
purchase of an interest in one of the Owner Trusts.                                                                           
|
| |  | The Overall Lease Transaction requires MCV to achieve certain rent coverage
ratios and other financial tests prior to a distribution to the Partners.
Generally, these financial tests become more restrictive with the passage
of time. Further, MCV is restricted to making permitted investments and
incurring permitted
indebtedness as specified in the Overall Lease Transaction. The Overall
Lease Transaction also requires filing of certain periodic operating and
financial reports, notification to the lessors of events constituting a
material adverse change, significant litigation or governmental
investigation, and change in status as a qualifying facility under FERC
proceedings or court decisions, among others. Notification and approval is
required for plant modification, new business activities, and other
significant changes, as defined. In addition,

F-15



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | MCV has agreed to indemnify various parties to the sale and leaseback
transaction against any expenses or environmental claims asserted, or
certain federal and state taxes imposed on the Facility, as defined in the
Overall Lease Transaction.                                                                                                                                                                                                                                                                               
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under the terms of the Overall Lease Transaction and refinancing of the
tax-exempt bonds, approximately $25.0 million of transaction costs were a
liability of MCV and have been recorded as a deferred cost. Financing
costs incurred with the issuance of debt are deferred and amortized using
the interest method over the remaining portion of the 25-year lease term.
Deferred financing costs of approximately $1.4 million, $1.5 million and
$1.7 million were amortized in the years 2003, 2002 and 2001, respectively.
|
| |  | Interest and fees incurred related to long-term debt arrangements during
2003, 2002 and 2001 were $111.9 million, $118.3 million and $124.6 million,
respectively.                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Interest and fees paid during 2003, 2002 and 2001 were $115.4 million,
$122.1 million and $131.7 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Minimum payments due under these long-term debt arrangements over the next
five years are (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                       

|     |  |           |         |          |  |       |         |  |  |   |         | 
|---- |  | --------- | ------- | -------- |  | ----- | ------- |  |  | - | ------- | 
|     |  | Principal |         | Interest |  | Total
|     |  |           |         |          |  |      
|2004 |  | $         | 134,576 |          |  | $     | 108,233 |  |  | $ | 242,809 | 
|2005 |  |           | 76,547  |          |  |       | 97,836  |  |  |   | 174,383 | 
|2006 |  |           | 63,459  |          |  |       | 92,515  |  |  |   | 155,974 | 
|2007 |  |           | 62,916  |          |  |       | 87,988  |  |  |   | 150,904 | 
|2008 |  |           | 67,753  |          |  |       | 83,163  |  |  |   | 150,916 | 
|     |  |           |         |          |  |       |         |  |  |   |         | 
|     |  | $         | 405,251 |          |  | $     | 469,735 |  |  | $ | 874,986 | 
|     |  |           |         |          |  |       |         |  |  |   |         | 



| |  | Revolving Credit Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | MCV has also entered into a working capital line (Working Capital
Facility), which expires August 29, 2004. Under the terms of the existing
agreement, MCV can borrow up to the $50 million commitment, in the form of
short-term borrowings or letters of credit collateralized by MCVs natural
gas inventory and earned receivables. At any given time, borrowings and
letters of credit are limited by the amount of the borrowing base, defined
as 90% of earned receivables and 50% of natural gas inventory, capped at
$15 million. During 2003, MCV did not utilize the Working Capital
Facility. At December 31, 2003, MCV had no outstanding borrowings or
letters of credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Intercreditor Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | MCV has also entered into an Intercreditor Agreement with the Owner
Trustee, Working Capital Lender, U.S. Bank National Association as
Collateral Agent (Collateral Agent) and the Senior and Subordinated
Indenture Trustees. Under the terms of this agreement, MCV is required to
deposit all revenues derived from the operation of the Facility with the
Collateral Agent for purposes of paying operating expenses and rent. In
addition, these funds are required to pay construction modification costs
and to secure future rent payments. As of December 31, 2003, MCV has
deposited $137.3 million into the reserve account. The reserve account is
to be maintained at not less than $40 million nor more than $137 million
(or debt portion of next succeeding basic rent payment, whichever is
greater). Excess funds in the reserve account are periodically transferred
to MCV. This agreement also contains provisions governing the distribution
of revenues and rents due under the
Overall Lease Transaction, and establishes the priority of payment among
the Owner Trusts, creditors of the Owner Trusts, creditors of MCV and the
Partnership.

F-16



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



|(7) |  | COMMITMENTS AND OTHER AGREEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | MCV has entered into numerous commitments and other agreements related to
the Facility. Principal agreements are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Power Purchase Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | MCV and Consumers have executed the PPA for the sale to Consumers of a
minimum amount of electricity, subject to the capacity requirements of Dow
and any other permissible electricity purchasers. Consumers has the right
to terminate and/or withhold payment under the PPA if the Facility fails to
achieve certain operating levels or if MCV fails to provide adequate fuel
assurances. In the event of early termination of the PPA, MCV would have a
maximum liability of approximately $270 million if the PPA were terminated
in the 12th through 24th years. The term of this agreement is 35 years
from the commercial operation date and year-to-year thereafter.                                                                                                                                                                                                                    
|   
|    |  | Steam and Electric Power Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | MCV and Dow executed the SEPA for the sale to Dow of certain minimum
amounts of steam and electricity for Dows facilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | If the SEPA is terminated, and Consumers does not fulfill MCVs commitments
as provided in the Backup Steam and Electric Power Agreement, MCV will be
required to pay Dow a termination fee, calculated at that time, ranging
from a minimum of $60 million to a maximum of $85 million. This agreement
provides for the sale to Dow of steam and electricity produced by the
Facility for terms of 25 years and 15 years, respectively, commencing on
the commercial operation date and year-to-year thereafter.                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | Steam Purchase Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | MCV and DCC executed the SPA for the sale to DCC of certain minimum amounts
of steam for use at the DCC Midland site. Steam sales under the SPA
commenced in July 1996. Termination of this agreement, prior to
expiration, requires the terminating party to pay to the other party a
percentage of future revenues, which would have been realized had the
initial term of 15 years been fulfilled. The percentage of future revenues
payable is 50% if termination occurs prior to the fifth anniversary of the
commercial operation date and 33-1/3% if termination occurs after the fifth
anniversary of this agreement. The term of this agreement is 15 years from
the commercial operation date of steam deliveries under the contract and
year-to-year thereafter.                                                                                                                       
|   
|    |  | Gas Supply Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | MCV has entered into gas purchase agreements with various producers for the
supply of natural gas. The current contracted volume totals 227,561 MMBtu
per day annual average for 2004. As of January 1, 2004, gas contracts with
U.S. suppliers provide for the purchase of 149,423 MMBtu per day while gas
contracts with Canadian suppliers provide for the purchase of 78,138 MMBtu
per day. Some of these contracts require MCV to pay for a minimum amount
of natural gas per year, whether or not taken. The estimated minimum
commitments under these contracts based on current long term prices for gas
for the years 2004 through 2008 are $267.3 million, $338.6 million, $344.1
million, $340.4 million and $283.9 million, respectively. A portion of
these payments may be utilized in future years to offset the cost of
quantities of natural gas taken above the minimum amounts.
|   
|    |  | Gas Transportation Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | MCV has entered into firm natural gas transportation agreements with
various pipeline companies. These agreements require MCV to pay certain
reservation charges in order to reserve the transportation capacity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-17



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | MCV incurred reservation charges in 2003, 2002 and 2001, of $34.8 million,
$35.1 million and $36.2 million, respectively. The estimated minimum
reservation charges required under these agreements for each of the years
2004 through 2008 are $34.9 million, $33.8 million, $30.0 million, $21.6
million and $21.6 million, respectively. These projections are based on
current commitments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Gas Turbine Service Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | MCV entered into a Service Agreement, as amended, with Alstom, which
commenced on January 1, 1990 and was set to expire upon the earlier of the
completion of the sixth series of major GTG inspections or December 31,
2009. Under the terms of this agreement, Alstom sold MCV an initial
inventory of spare parts for the GTGs and provides qualified service
personnel and supporting staff to assist MCV, to perform scheduled
inspections on the GTGs, and to repair the GTGs at MCVs request. Upon
termination of the Service Agreement (except for nonperformance by Alstom),
MCV must pay a cancellation payment. MCV and Alstom amended the Service
Agreement, effective December 31, 1993, to include the supply of hot gas
path parts. Under the amended Service Agreement, Alstom provides hot gas
path parts for MCVs twelve gas turbines through the fourth series of major
GTG inspections, which were completed in 2002. In January 1998, MCV and
Alstom amended the length of the amended Service Agreement to extend
through the sixth series of major GTG inspections, which are expected to be
completed by year end 2008, for a lump sum fixed price covering the entire
term of the amended Service Agreement of $266.5 million (in 1993 dollars,
which is adjusted based on exchange rates and Swiss inflation indices),
payable on the basis of operating hours as they occur over the same period.
MCV has made payments totaling approximately $200.7 million under this
amended Service Agreement through December 31, 2003.
|
| |  | MCV signed a new maintenance service and parts agreement with General
Electric International, Inc. (GEII), effective December 31, 2002 (GEII
Agreement). GEII will provide maintenance services and hot gas path parts
for MCVs twelve GTGs. Under terms and conditions similar to the
MCV/Alstom Service Agreement, as described above the GEII Agreement will
cover four rounds of major GTG inspections, which are expected to be
completed by the year 2015, at a savings to MCV as compared to the Service
Agreement with Alstom. The GEII Agreement is expected to replace the
current Alstom Service Agreement commencing July 1, 2004. The GEII
Agreement can be terminated by either party for cause or convenience.
Should termination for convenience occur, a buy out amount will be paid by
the terminating party with payments ranging from approximately $19.0
million to $.9 million, based upon the number of operating hours utilized
since commencement of the GEII Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | MCV terminated the Alstom Service Agreement in February 2004, for cause and therefore does not owe the approximately $5.8 million termination payment to Alstom. MCV has a claim against Alstom for approximately $3.0 million for
adjustments due to reduced equivalent operating hours experienced under the
Service Agreement, that was paid by MCV and a claim against Alstom for one set of hot gas path spare parts (valued within a
range of $3.0 million to $7.0 million). These matters may be disputed by
Alstom and other disputes may arise. MCV will seek final resolution of all claims that may arise between the parties. At
this time, MCV has not recognized any liability to or receivable from Alstom in connection with these claims or termination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Steam Turbine Service Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | MCV entered into a nine year Steam Turbine Maintenance Agreement with
General Electric Company effective January 1, 1995, which is designed to
improve unit reliability, increase availability and minimize unanticipated
maintenance costs. In addition, this contract includes performance
incentives and penalties,
which are based on the length of each scheduled outage and the number of
forced outages during a calendar year. Effective February 1, 2004, MCV and
GE amended this contract to extend its term through August 31, 2007. MCV
will continue making monthly payments over the life of the contract, which
will total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-18



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



|    |  | $22.3 million (subject to escalation based on defined indices). The
parties have certain termination rights without incurring penalties or
damages for such termination. Upon termination, MCV is only liable
for payment of services rendered or parts provided prior to
termination.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Site Lease                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | In December 1987, MCV leased the land on which the Facility is located from
Consumers (Site Lease). MCV and Consumers amended and restated the Site
Lease to reflect the creation of five separate undivided interests in the
Site Lease as of June 1, 1990. Pursuant to the Overall Lease Transaction,
MCV assigned these undivided interests in the Site Lease to the Owner
Trustees, which in turn subleased the undivided interests back to MCV under
five separate site subleases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | The Site Lease is for a term which commenced on December 29, 1987, and ends
on December 31, 2035, including two renewal options of five years each.
The rental under the Site Lease is $.6 million per annum, including the two
five-year renewal terms.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|    |  | Gas Turbine Generator Compressor Blade Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | MCV entered into an agreement with MTS Machinery Tools & Services AG
(MTS), in January 2002. Under this agreement MTS redesigned and will
manufacture and install new design compressor blades for MCVs twelve
GTGs, which is expected to increase the overall electrical capacity and
efficiency of each GTG. MCV has purchased three sets of such blades and
has the option to purchase an additional nine sets. The first set of
compressor blades was installed in the second quarter of 2003 for
approximately $4.2 million. At this time, an additional two sets have been
ordered at a cost of $4.1 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(8) |  | PROPERTY TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | In 1997, MCV filed a property tax appeal against the City of Midland at the
Michigan Tax Tribunal contesting MCVs 1997 property taxes. Subsequently,
MCV filed appeals contesting its property taxes for tax years 1998 through
2003 at the Michigan Tax Tribunal. A trial was held for tax years 1997 
2000. The appeals for tax years 2001-2003 are being held in abeyance. On
January 23, 2004, the Michigan Tax Tribunal issued its decision in MCVs
tax appeal against the City of Midland for tax years 1997 through 2000.
MCV management has estimated that the decision will result in a refund to
MCV for the tax years 1997 through 2000 of approximately $29 million in
taxes plus $7 million of interest. The decision is subject to
reconsideration at the Tribunal and may be appealed to the Michigan
Appellate Court and Michigan Supreme Court. The City of Midland has filed
a motion for reconsideration at the Michigan Tax Tribunal, asking the
Tribunal to make certain technical corrections, as well as substantive
changes to the decision. MCV has opposed this motion. MCV management
cannot predict the outcome of these further legal proceedings. MCV has not
recognized any of the above stated refunds (net of approximately $15.5
million of deferred expenses) in earnings at this time.
|   
|(9) |  | RETIREMENT BENEFITS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Postretirement Health Care Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | In 1992, MCV established defined cost postretirement health care plans
(Plans) that cover all full-time employees, excluding key management.
The Plans provide health care credits, which can be utilized to purchase
medical plan coverage and pay qualified health care expenses. Participants
become eligible for the
benefits if they retire on or after the attainment of age 65 or upon a
qualified disability retirement, or if they have 10 or more years of
service and retire at age 55 or older. The Plans granted retroactive
benefits for all employees hired prior to January 1, 1992. This prior
service cost has been amortized to expense over a five                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F-19



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | year period. MCV annually funds the current year service and interest
cost as well as amortization of prior service cost to both qualified and
non-qualified trusts. The MCV accounts for retiree medical benefits in
accordance with SFAS 106, Employers Accounting for Postretirement Benefits
Other Than Pensions. This standard required the full accrual of such
costs during the years that the employee renders service to the MCV until
the date of full eligibility. The accumulated benefit obligation of the
Plans were $3.3 million at December 31, 2003 and $2.7 million at December
31, 2002. The measurement date of these Plans was December 31, 2003.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On December 8, 2003, President Bush signed into law the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the Act).
The Act expanded Medicare to include, for the first time, coverage for
prescription drugs. At this time, because of various uncertainties related
to this legislation and the appropriate accounting methodology, MCV has
elected to defer financial recognition of this legislation until the FASB
issues final accounting guidance. When issued, that final guidance could
require MCV to change previously reported information. This deferral
election is permitted under SFAS 106-1.                                    
|
| |  | The following table reconciles the change in the Plans benefit obligation
and change in Plan assets as reflected on the balance sheet as of December
31 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                                               |  |      |         |      |  |   |         |  
|---------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|                                               |  | 2003 |         | 2002
|                                               |  |      |         |     
|Change in benefit obligation:                  |  |      |         |      |  |   |         |  
|Benefit obligation at beginning of year        |  | $    | 2,741.9 |      |  | $ | 2,405.1 |  
|Service cost                                   |  |      | 212.5   |      |  |   | 197.3   |  
|Interest cost                                  |  |      | 178.2   |      |  |   | 188.7   |  
|Actuarial gain (loss)                          |  |      | 147.4   |      |  |   | (44.6   | )
|Benefits paid during year                      |  |      | (4.0    | )    |  |   | (4.6    | )
|                                               |  |      |         |      |  |   |         |  
|Benefit obligation at end of year              |  |      | 3,276.0 |      |  |   | 2,741.9 |  
|                                               |  |      |         |      |  |   |         |  
|Change in Plan assets:                         |  |      |         |      |  |   |         |  
|Fair value of Plan assets at beginning of year |  |      | 2,045.8 |      |  |   | 2,088.0 |  
|Actual return on Plan assets                   |  |      | 527.5   |      |  |   | (270.9  | )
|Employer contribution                          |  |      | 257.5   |      |  |   | 233.3   |  
|Benefits paid during year                      |  |      | (4.0    | )    |  |   | (4.6    | )
|                                               |  |      |         |      |  |   |         |  
|Fair value of Plan assets at end of year       |  |      | 2,826.8 |      |  |   | 2,045.8 |  
|                                               |  |      |         |      |  |   |         |  
|Unfunded (funded) status                       |  |      | 449.2   |      |  |   | 696.1   |  
|Unrecognized prior service cost                |  |      | (170.3  | )    |  |   | (184.6  | )
|Unrecognized net gain (loss)                   |  |      | (278.9  | )    |  |   | (511.5  | )
|                                               |  |      |         |      |  |   |         |  
|Accrued benefit cost                           |  | $    |        |      |  | $ |        |  
|                                               |  |      |         |      |  |   |         |  



| |  | Net periodic postretirement health care cost for years ending December 31,
included the following components (in thousands):
| |  | ----------------------------------------------------------------------------------------------------------------------------

|                                                |  |      |        |      |  |      |        |   |  |   |        |  
|----------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                |  | 2003 |        | 2002 |  | 2001
|                                                |  |      |        |      |  |     
|Components of net periodic benefit cost:        |  |      |        |      |  |      |        |   |  |   |        |  
|Service cost                                    |  | $    | 212.5  |      |  | $    | 197.3  |   |  | $ | 173.5  |  
|Interest cost                                   |  |      | 178.2  |      |  |      | 188.7  |   |  |   | 142.9  |  
|Expected return on Plan assets                  |  |      | (163.7 | )    |  |      | (167.0 | ) |  |   | (171.3 | )
|Amortization of unrecognized net (gain) or loss |  |      | 30.5   |      |  |      | 14.3   |   |  |   | (12.6  | )
|                                                |  |      |        |      |  |      |        |   |  |   |        |  
|Net periodic benefit cost                       |  | $    | 257.5  |      |  | $    | 233.3  |   |  | $ | 132.5  |  
|                                                |  |      |        |      |  |      |        |   |  |   |        |  

F-20



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change
in assumed health care cost trend rates would have the following effects
(in thousands):
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                        |  |                    |       |                    |  |   |       | 
|------------------------------------------------------- |  | ------------------ | ----- | ------------------ |  | - | ----- | 
|                                                        |  | 1-Percentage-Point |       | 1-Percentage-Point
|                                                        |  | Increase           |       | Decrease          
|                                                        |  |                    |       |                   
|Effect on total of service and interest cost components |  | $                  | 48.6  |                    |  | $ | 41.8  | 
|Effect on postretirement benefit obligation             |  | $                  | 358.1 |                    |  | $ | 310.9 | 



| |  | Assumptions used in accounting for the Post-Retirement Health Care Plan
were as follows:
| |  | ----------------------------------------------------------------------------------------

|                                        |                      |  |      |      |      |  |      |      |   |  |      |      |  
|--------------------------------------- | -------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                        |                      |  | 2003 |      | 2002 |  | 2001
|                                        |                      |  |      |      |      |  |     
|Discount rate                           |                      |  | 6.00 | %    |      |  | 6.75 | %    |   |  | 7.25 | %   
|Long-term rate of return on Plan assets |                      |  | 8.00 | %    |      |  | 8.00 | %    |   |  | 8.00 | %   
|Inflation benefit amount                |                      |  |      |      |      |  |      |      |   |  |      |     
|                                        | 1998 through 2004    |  |      | 0.00 | %    |  |      | 0.00 | % |  |      | 0.00 | %
|                                        | 2005 and later years |  |      | 4.00 | %    |  |      | 4.00 | % |  |      | 4.00 | %



| |  | The long-term rate of return on Plan assets is established based on MCVs
expectations of asset returns for the investment mix in its Plan (with some
reliance on historical asset returns for the Plans). The expected returns
for various asset categories are blended to derive one long-term
assumption.                                                                                                                                                                                                                                                                                                                                              
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Plan Assets. Citizens Bank has been appointed as trustee (Trustee) of
the Plan. The Trustee serves as investment consultant, with the
responsibility of providing financial information and general guidance to
the MCV Benefits Committee. The Trustee shall invest the assets of the
Plan in the separate investment options in accordance with instructions
communicated to the Trustee from time to time by the MCV Benefit Committee.
The MCV Benefits Committee has the fiduciary and investment selection
responsibility for the Plan. The MCV Benefits Committee consists of MCV
Officers (excluding the President and Chief Executive Officer).
|
| |  | The MCV has a target allocation of 80% equities and 20% debt instruments.
These investments emphasis total growth return, with a moderate risk level.
The MCV Benefits Committee reviews the performance of the Plan investments
quarterly, based on a long-term investment horizon and applicable
benchmarks, with rebalancing of the investment portfolio, at the discretion
of the MCV Benefits Committee.                                                                                                                                                                                                                                             
|
| |  | MCVs Plans weighted-average asset allocations, by asset category are as
follows as of December 31:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                          |       |  |      |     |      |  |    |     |  
|------------------------- | ----- |  | ---- | --- | ---- |  | -- | --- | -
|                          |       |  | 2003 |     | 2002
|                          |       |  |      |     |     
|Asset Category:           |       |  |      |     |      |  |    |    
|Cash and cash equivalents |       |  | 11   | %   |      |  | 1  | %  
|Fixed income              |       |  | 17   | %   |      |  | 23 | %  
|Equity securities         |       |  | 72   | %   |      |  | 76 | %  
|                          |       |  |      |     |      |  |    |    
|                          | Total |  |      | 100 | %    |  |    | 100 | %
|                          |       |  |      |     |      |  |    |    



| |  | Contributions. MCV expects to contribute approximately $.2 million to the
Plan in 2004.                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Retirement and Savings Plans                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | MCV sponsors a defined contribution retirement plan covering all employees.
Under the terms of the plan, MCV makes contributions to the plan of either
five or ten percent of an employees eligible annual compensation dependent
upon the employees age. MCV also sponsors a 401(k) savings plan for
employees. Contributions and costs for this plan are based on matching an
employees savings up to a maximum level. In

F-21



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



| |  | 2003, 2002 and 2001, MCV contributed $1.3 million, $1.2 million and $1.1
million, respectively under these plans.                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Supplemental Retirement Benefits                                                                                                                                                                                                                                                                                                          
|
| |  | MCV provides supplemental retirement, postretirement health care and excess
benefit plans for key management. These plans are not qualified plans
under the Internal Revenue Code; therefore, earnings of the trusts
maintained by MCV to fund these plans are taxable to the Partners and trust
assets are included in the assets of MCV.

F-22



---



##### 



MIDLAND COGENERATION VENTURE LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



|(10) |  | PARTNERS EQUITY AND RELATED PARTY TRANSACTIONS                                                                                                                                                                                                                                                                                                                                                   
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | The following table summarizes the nature and amount of each of MCVs
Partners equity interest, interest in profits and losses of MCV at December
31, 2003, and the nature and amount of related party transactions or
agreements that existed with the Partners or affiliates as of December 31,
2003, 2002 and 2001, and for each of the twelve month periods ended December
31 (in thousands).

|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  |  | 
|------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------ | ---------------------------- | ------- | -------- | ------- | ----------------------------------------- | ---- | ------ | ------------------------------------ | --------------------------------------------------------- | ------------------------------------------------------- | ------ | ------- | ------ |  | ------ | ------- | ------ |  | ------ | ------- | ------ |  |  |  | 
|Beneficial Owner, Equity Partner,                                                                            |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|Type of Partner and Nature of Related Party                                                                  |                                                                                                              | Equity Interest              |         | Interest |         | Related Party Transactions and Agreements |      | 2003   |                                      | 2002                                                      |                                                         | 2001  
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |       
|CMS Energy Company                                                                                           |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|CMS Midland, Inc.                                                                                            |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Power purchase agreements                                 |                                                         | $      | 513,774 |        |  | $      | 557,149 |        |  | $      | 550,477 |       
|                                                                                                             | General Partner; wholly-owned subsidiary of Consumers Energy
Company                                         |                              |         |          |         |                                           |      |        |                                      |                                                           | Purchases under gas transportation agreements           |        |         | 14,294 |  |        |         | 23,552 |  |        |         | 24,059 | 
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Purchases under spot gas agreements                       |                                                         |        | 663     |        |  |        | 3,631   |        |  |        | 3,756   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Purchases under gas supply agreements                     |                                                         |        | 2,330   |        |  |        | 11,306  |        |  |        | 10,725  |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Gas storage agreement                                     |                                                         |        | 2,563   |        |  |        | 2,563   |        |  |        | 2,563   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Land lease/easement agreements                            |                                                         |        | 600     |        |  |        | 600     |        |  |        | 600     |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Accounts receivable                                       |                                                         |        | 40,373  |        |  |        | 44,289  |        |  |        | 48,843  |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Accounts payable                                          |                                                         |        | 1,025   |        |  |        | 3,502   |        |  |        | 4,772   |       
|                                                                                                             |                                                                                                              | $                            | 391,546 |          |         |                                           | 49.0 | %      |                                      | Sales under spot gas agreements                           |                                                         |        | 3,260   |        |  |        | 1,084   |        |  |        | 7,107   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|El Paso Corporation                                                                                          |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|Source Midland Limited Partnership
(SMLP) General Partner; owned by
subsidiaries of El Paso Corporation(1) |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Purchase under gas transportation agreements              |                                                         |        | 13,023  |        |  |        | 12,463  |        |  |        | 13,653  |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        | Purchases under spot gas agreement   |                                                           |                                                         | 610    |         |        |  | 15,655 |         |        |  | 45,130 |        
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        | Purchases under gas supply agreement |                                                           |                                                         | 54,308 |         |        |  | 47,136 |         |        |  | 5,912  |        
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Gas agency agreement                                      |                                                         |        | 238     |        |  |        | 365     |        |  |        | 1,989   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Deferred reservation charges under gas purchase agreement |                                                         |        | 4,728   |        |  |        |        |        |  |        | 7,880   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Accounts receivable                                       |                                                         |        |        |        |  |        | 523     |        |  |        |        |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Accounts payable                                          |                                                         |        | 5,751   |        |  |        | 7,706   |        |  |        | 5,198   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Sales under spot gas agreements                           |                                                         |        | 3,474   |        |  |        | 14,007  |        |  |        | 28,451  |       
|                                                                                                             |                                                                                                              | $                            | 139,421 |          |         |                                           | 18.1 | %      |                                      | Partner cash withdrawal (including accrued interest)(2)   |                                                         |        |        |        |  |        |        |        |  |        | 56,714  |       
|El Paso Midland, Inc. (El Paso Midland)
General Partner; wholly-owned subsidiary
of El Paso Corporation(1) |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | See related party activity listed under SMLP.             |                                                         |        |         |        |  |        |         |        |  |        |         |       
|                                                                                                             |                                                                                                              | 83,653                       |         |          |         | 10.9                                      |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        | 
|MEI Limited Partnership (MEI)                                                                              |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | See related party activity listed under SMLP.             |                                                         |        |         |        |  |        |         |        |  |        |         |       
|                                                                                                             | A General and Limited Partner;
50% interest owned by El Paso Midland, Inc.
and 50% interest owned by SMLP(1) |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  | 
|                                                                                                             |                                                                                                              | General Partnership Interest |         |          | 69,714  |                                           |      |        | 9.1                                  |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  |  | 
|                                                                                                             |                                                                                                              | Limited Partnership Interest |         |          | 6,969   |                                           |      |        | .9                                   |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  |  | 
|Micogen Limited Partnership                                                                                  |                                                                                                              |                              | 34,854  |          |         |                                           | 4.5  |        |                                      | See related party activity listed under SMLP.             |                                                         |        |         |        |  |        |         |        |  |        |         |       
|                                                                                                             | (MLP) Limited Partner, owned
subsidiaries of El Paso Corporation(1)                                        |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  | 
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|                                                                                                             |                                                                                                              | Total El Paso Corporation    |         | $        | 334,611 |                                           |      |        | 43.5                                 | %                                                         |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  |  | 
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|The Dow Chemical Company                                                                                     |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|The Dow Chemical Company                                                                                     |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Steam and electric power agreement                        |                                                         |        | 36,207  |        |  |        | 29,385  |        |  |        | 33,727  |       
|                                                                                                             | Limited Partner                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           | Steam purchase agreement - Dow Corning Corp (affiliate) |        |         | 4,017  |  |        |         | 3,746  |  |        |         | 3,781  | 
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Purchases under demineralized water supply agreement      |                                                         |        | 6,396   |        |  |        | 6,605   |        |  |        | 6,913   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Accounts receivable                                       |                                                         |        | 3,431   |        |  |        | 3,635   |        |  |        | 3,191   |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Accounts payable                                          |                                                         |        | 610     |        |  |        | 1,016   |        |  |        | 948     |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Standby and backup fees                                   |                                                         |        | 731     |        |  |        | 734     |        |  |        | 696     |       
|                                                                                                             |                                                                                                              | $                            | 72,918  |          |         |                                           | 7.5  | %      |                                      | Sales of gas under tolling agreement                      |                                                         |        |        |        |  |        | 6,442   |        |  |        |        |       
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|Alanna Corporation                                                                                           |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 
|Alanna Corporation                                                                                           |                                                                                                              |                              |         |          |         |                                           |      |        |                                      | Note receivable                                           |                                                         |        | 1       |        |  |        | 1       |        |  |        | 1       |       
|                                                                                                             | Limited Partner; wholly-owned subsidiary
of Alanna Holdings Corporation                                      |                              | $       | 1        | (3)     |                                           |      | .00001 | %                                    |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  |  | 
|                                                                                                             |                                                                                                              |                              |         |          |         |                                           |      |        |                                      |                                                           |                                                         |        |         |        |  |        |         |        |  |        |         |        |  | 

Footnotes to Partners Equity and Related Party Transactions



|(1) |  | On January 29, 2001, El Paso Corporation (El Paso) announced that it
had completed its merger with The Coastal Corporation (Coastal).
Coastal was the previous parent company of El Paso Midland (formerly known
as Coastal Midland, Inc.), SMLP, MLP and, through SMLP, MEI. After the
merger, Coastal became a wholly-owned subsidiary of El Paso and has
changed its name to El Paso CGP Company.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | A letter of credit has been issued and recorded as a note receivable from
El Paso Midland, this amount includes their share of cash available, as
well as, cash available to MEI, MLP and SMLP.                                                                                                                                                                                                         
|   
|(3) |  | Alannas capital stock is pledged to secure MCVs obligation under the
lease and other overall lease transaction documents.                                                                                                                                                                                                                                                                             

F-23



---



##### 



SUPPLEMENTAL INFORMATION

Supplemental information is to be furnished with reports filed pursuant to
Section 15 (d) of the Act by registrants, which have not registered securities
pursuant to Section 12 of the Act. No such annual report or proxy statement
has been sent to security holders.

F-24



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                    |  |                                                  |  |                                      
|------------------- |  | ------------------------------------------------ |  | -------------------------------------
|                    |  | MIDLAND COGENERATION VENTURE
LIMITED PARTNERSHIP
|                    |  |                                                  |  |                                      
|Date: March 1, 2004 |  | By                                               |  | /s/ James M. Kevra                   
|                    |  |                                                  |  |                                      
|                    |  |                                                  |  | James M. Kevra                       
|                    |  |                                                  |  | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

|                                         |  |                                                                                       |  |              
|---------------------------------------- |  | ------------------------------------------------------------------------------------- |  | -------------
|Signature                                |  | Title                                                                                 |  | Date         
|                                         |  |                                                                                       |  |              
|/s/ James M. Kevra

James M. Kevra       |  | President and Chief Executive Officer
(Principal Executive Officer)                   |  | March 1, 2004
|                                         |  |                                                                                       |  |              
|/s/ James M. Rajewski

James M. Rajewski |  | Chief Financial Officer,
Vice President and Controller
(Principal Accounting Officer) |  | March 1, 2004
|                                         |  |                                                                                       |  |              
|/s/ John J. ORourke

John J. ORourke   |  | Chairman, Management Committee                                                        |  | March 1, 2004
|                                         |  |                                                                                       |  |              
|/s/ David W. Joos

David W. Joos         |  | Member, Management Committee                                                          |  | March 1, 2004

F-25